“And the Band Plays On” in the EU

Things are bad in the European Union (EU). Just how bad you ask? They are so bad that the unelected communiqué dated March 26th, 2013, the European Commission (EC), the civil service arm of the EU, pulled no punches. It reads like a laundry list of pain and suffering:

Unemployment rose in January to 26.2 million people or 10.8% of the economically active population (11.9 % for the euro-zone area).

Overall employment in the EU fell by 0.4% in 2012

GDP in the EU shrank by 0.5% during the fourth quarter of 2012, the largest contraction since early 2009.

Youth unemployment reached a new peak in the EU in January at 23.6%, with levels in Spain and Greece now approaching 60%

The crisis has had a negative impact on fertility rates, which now stand at just under 1.6 children per woman. This is below the generally accepted replacement rate of 2.1, the minimum considered as necessary to keep a society’s population stable and at current levels.

By that last measure, one could literally say that the EU is dying.

To be fair, the Commission is urging that EU countries put more of an emphasis on social investment. It is calling for measures that will increasepeople's “skills and capacities” in order to better allow them to “integrate in society and the labour market.”

As if to say that the only problem with the over 26 million people who are currently out of work was that they just needed to brush up on their java programming skills.

If the EU didn’t have enough problems on its hands already, the banking system of Cypress has just inconveniently blown up, a completely foreseeable event given the fact that it was allowed to grown to 7 times the size of the country’s economic output or Gross Domestic Product (GDP), fuelled in large part by Russian deposits seeking favourable tax treatment. Granted, this is not as bad as Malta’s banking sector which is 8 times GDP or Luxembourg’s 22 times GDP.

But not to worry. The EU, in an attempt to learn from previous banking crises, has decided to save the day by using a “bail-in” instead of a “bail-out.” The details appear to change on a daily basis, but instead of making all depositors whole, there is talk of “haircuts” being introduced, that is to say, losses on any deposits over the insured threshold amount. Current reports are that large depositors might stand to lose 60% of any amount over the guaranteed threshold of €100,000. Local “Mom and Pop” investors with deposits within the €100,000 insured threshold, and who basically had absolutely nothing to do with the crisis, stand to lose “only” 6.75% of their money (there is a talked about exemption for accounts under €20,000). To add insult to injury, a report in Reuters said that while banks were closed for a government imposed “banking holiday” that subjected ordinary Cypriots to limited ATM withdrawals, two banks at the centre of the Cyprus crisis had units in London that remained open throughout the week and placed no limits on withdrawals, implying that large depositors – and the people most likely responsible for fuelling the banking bubble – were allowed to get some, if not all, of their money out.

What the unelected fonctionnaires in Brussels (as well as those in Frankfort, the home of the European Central Bank) are somehow failing to realise is that we are in the worst economic and social crisis in 80 years. Recent analysis from a Nobel Prize winning economist (“So what exactly is the solution to the current crisis that we find ourselves in, a crisis, it should be noted, that was brought on by reckless and irresponsible speculation in the now estimated $639 trillion unregulated over-the-counter derivatives market and the poor regulatory oversight carried out by various government agencies, and which was aggravated by poorly planned and poorly coordinated government policies that were doomed to failure from the very start, and which had almost nothing to do with the 26 million people who now find themselves out of work?

(Author’s NoteAs the old saying goes, “When the going gets tough, the tough get going,” and the EU is no exception. It is doggedly promoting what can only be referred to as the 2 redheaded step-children of economics, better known as “growth friendly fiscal consolidation” and “smart fiscal consolidation.” In English (supposedly one of the official languages of the EU) this translates into “the good kind of self destructive austerity measures, not the bad ones that haven’t worked for the past 4 years.”

The EC, for its part, has decided to “go big,” stating a need for “a deep and genuine Economic and Monetary Union.” The Commission’s (unelected) President Barroso, and infamous Gulf War II enabler, is calling for the even greater integration of a failed economic and monetary system, no matter what the cost in pain and suffering to its citizens. President Barroso said that there is a combined need “for more discipline [i.e. more austerity, i.e. more failed policies] at national level with more solidarity at EU level.”

All of this is supposed to somehow magically “drive forward Europe's competitiveness, growth and job creation" despite over 4 years of empirical evidence to the contrary.

President Barroso’s partner in crime, Vice President Olli Rehn, appears to be even more deluded and criminally negligent than the good President himself. In a statement made at a conference in Poland o